Download Full Version - UMC

128 United Microelectronics Corporation Annual Report 2004
assets of its investee resulting from its subscription to additional
shares of stock, issued by such investee, at the rate
not proportionate to its existing equity ownership in such
investee, is charged to the capital reserve and long-term investments
account.
Unrealized intercompany gains and losses arising from
downstream transactions with investees accounted for under
the equity method are eliminated in proportion to the
Group's ownership percentage while those from transactions
with majority-owned (above 50%) subsidiaries are eliminated
entirely. Unrealized intercompany gains and losses
arising from upstream transactions with investees accounted
for under the equity method are eliminated in proportion to
the Group's ownership percentage. Unrealized intercompany
gains and losses arising from transactions between investees
accounted for under the equity method are eliminated in
proportion to the multiplication of the Group's ownership
percentage; while those arising from transactions between
majority-owned subsidiaries are eliminated in proportion to
the Group's ownership percentage in the subsidiary incurred
with a gain or loss.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Interest incurred
on loans used to finance the construction of property,
plant and equipment is capitalized and depreciated accordingly.
Maintenance and repairs are charged to expense as incurred.
Significant renewals and improvements are treated as
capital expenditures and are depreciated accordingly. When
property, plant and equipment are disposed, their original
cost and accumulated depreciation are written off and the
related gain or loss is classified as non-operating income or
expenses. Idle assets are transferred to other assets according
to the lower of net book or net realizable value, with the
difference charged to non-operating expenses. The corresponding
depreciation expenses provided are also classified
as non-operating expenses.
Depreciation is provided on the straight-line basis using
the estimated economic life of the assets less salvage value,
if any. When the estimated economic life expires, property,
plant and equipment, which are still in use, are depreciated
over the newly estimated remaining useful life using the
salvage value. The estimated economic life of the property,
plant and equipment is as follows: buildings - 3 to 55 years;
machinery and equipment - 3 to 6 years; transportation
equipment - 2 to 5 years; furniture and fixtures - 2 to 20
years; leased assets and leasehold improvements - the lease
period, or estimated economic life, whichever is shorter.
Intangible Assets
Patents are stated at cost and amortized over their estimated
economic life using the straight-line method. Technological
know-how is stated at cost and amortized over its estimated
economic life using the straight-line method. Goodwill arising
from the merger is amortized using the straight-line
method over 15 years. At each balance sheet date, the Group
assesses whether there is any indication of impairment other
than temporary. If any such indication exists, the recoverable
amount is estimated and provision for impairment loss
is provided accordingly. The book value after recognizing the
impairment loss is recorded as the new cost.
Deferred Charges
Deferred charges are stated at cost and amortized on a
straight-line basis as follows: bonds issuance costs - over the
life of the bonds; patent license fees - the term of contract
or estimated economic life of the related technology, and
software - 3 years.
At each balance sheet date, the Group assesses whether
there is any indication of impairment other than temporary.
If any such indication exists, the recoverable amount is
estimated and provision for impairment losses is provided
accordingly. The book value after recognizing the impairment
loss is recorded as the new cost.
Convertible and Exchangeable Bonds
The issuance costs of convertible and exchangeable bonds
are classified as deferred charges and amortized over the life
of the bonds.
The excess of the stated redemption price over the par
value is accrued as compensation interest payable over the
redemption period, using the effective interest method.
When convertible bondholders exercise their conversion
rights, the book value of bonds is credited to common stock
at an amount equal to the par value of the common stock and
the excess is credited to capital reserve; no gain or loss is
recognized on bond conversion.
When exchangeable bondholders exercise their rights
to exchange for the reference shares, the book value of the
bond is to be offset against the book value of the investment
in reference shares and the related stockholders' equity accounts,
with the difference recognized as gain or loss on
disposal of investments.
Pension Plan
The net pension cost is computed based on an actuarial valuation
in accordance with the provision of the Statements of
Financial Accounting Standards of the Republic of China (ROC
Note 2